Jon Nadler: Will Fed act upon a commodity bubble?

Gold maintained a resilient tone in Asian trading overnight, oscillating between $910 and $920 as stock markets gained a bit on investor confidence.

Support came from a $1 rise in oil to $107 per barrel but further gains were capped by the US dollar's climb to back over 72 on the index (72.23) despite some waning of the level of confidence in its immediate prospects for a significant recovery. More will be known about such prospects following this weekend's G 7 get together.

New York spot trading opened with only marginal gains, with gold being quoted at $915.60 up $1.90 per ounce as participants continued to attempt test at higher levels on the heels of the dismal employment data last week. However, they were also mindful that speculators once again decreased their long positions in the metal in the trading week ending on April 1st.

For the moment, the stronger greenback and buoyancy in equities are keeping gold under the $925 area. Silver gained 5 cents to $17.79, while platinum rose $20 to $2038 and palladium added $12 to $456.00 per ounce respectively. The prospect of further tests of lower levels amid a recently nascent correction cannot be ruled out in coming sessions, however for now the focus will remain on the retails sales and consumer confidence data in the pipeline later in the week.

And now, for something completely different: The birth of the BPT. The Bubble Protection Team. If anyone had (valid) doubts that the Plunge Protection Team either existed at all, or was noticeable in certain markets, welcome to the new reality of a revamped Fed. This time, for real, whether we like it, or not. The New York Times reports that:

The plan of Treasury Secretary Paulson to overhaul the financial system includes a crucial proposal: it would officially transform the Federal Reserve into a market stability regulator rather than merely a banker's bank. This aspect of the Treasury is a natural step in a historical trend. The Fed is no longer just a regulatory agency presiding over a narrow group of businesses called banks. Rather, its mission increasingly is to maintain macro confidence confidence that the entire financial system is functioning well as part of the whole economy.

In recent years, central banks have not always managed macro confidence magnificently. The Fed failed to identify the twin bubbles of the last decade in the stock market and in real estate and we have to hope that the Fed and its global counterparts will do better in the future. Central banks are the only active practitioners of the art of stabilizing macro confidence, and they are all we have to rely on. continues the article.

The question becomes whether or not the Fed will now be inclined to identify and/or act upon a commodity bubble that has largely been in the making due to its own doings. The other question is how it might act in curbing such a bubble. We do not have the answers to these questions as yet, but it does not seem far fetched to extrapolate that currency market intervention and/or commodity futures market changes in rules could make their way onto the scene.

Watch for the effects of a cash injection for WaMu, the response in the Dow, and for the dollar/oil duo's values at least until the consumer data reaches the trading pits.